Paper Abstract

Abstract:Various arguments attempting to resurrect the single monopoly profit theory of tying
have been made, but none are successful. The Seabright claim that it is supported by a lack
of empirical proof fails because the single monopoly profit theory is an impossibility theory,
and my recommended exception applies to whatever empirical extent the necessary
conditions for that theory actually exist. The claim that a lack of empirical proof favors
critics of current tying doctrine also fails because it is the critics that favor a categorical rule
(of legality either for all ties or for all ties that lack substantial foreclosure) that requires
empirical proof across the category. In contrast, current tying doctrine uses no categorical
rule, but rather weighs efficiencies against anticompetitive effects in each case and permits
ties to whatever extent it turns out to be empirically true that the efficiencies outweigh the
anticompetitive effects. Current tying doctrine is thus preferable to the critics’ recommended
alternatives whether the standard is consumer welfare or total welfare, and whether one
thinks most ties flunk that standard or not.
Seabright also makes the more minor claim that, absent empirical proof that most ties
harm welfare, the law should shift the burden of proof on efficiencies away from defendants.
But this claim fails because: (1) the burden of empirical proof on legal issues is on those who
want to overrule precedent, (2) the fact that defendants have better access to evidence on
tying efficiencies favors putting the burden of proof on them regardless of what one assumes
about the welfare effects of most ties, (3) the relevant category is not all ties, but ties covered
by current doctrine with my exception, a category that excludes ties without market power,
ties of items routinely bundled in competitive markets, and fixed ratio ties of products that
lack separate utility and create no substantial foreclosure share, and (4) theoretical
considerations indicate that ties in the relevant set will usually reduce both consumer welfare
(the actual antitrust standard) and ex ante total welfare.
The Crane-Wright claim that bundled discounts cannot credibly threaten unbundled
prices that exceed but-for prices conflicts with the facts that: (1) firms can credibly threaten
the refusal to sell at any price that is necessary to get buyers to agree to tying and monopoly
pricing and (2) in markets with many buyers, buyers have collective action problems that
make them price takers.
My conclusions on the subset of ties that are metering ties is confirmed by Nalebuff’s
models. However, I think it more accurate to model metering ties by assuming that (1)
buyers purchase a whole number of tied units rather than (as he assumes) infinitely divisible
fractions of tied units, and (2) buyers have varying valuations rather than (as some of his
models assume) the same valuation for tied product usage over the relevant range.
My legal conclusions are also generally confirmed by First’s conclusions using a
multi-goal approach, but I prefer a welfarist analysis because I find the multi-goal approach
and its non-welfarist components conclusory and unpersuasive when they conflict with
welfare.